A good college/university degree is one of the invaluable investments that you could make. Having a good college/university helps you to get a financially well-settled future. As everyone is not fortunate enough to pay for college, many students are considering education loans in Nepal to cover their various expenses incurred while pursuing their college degrees in Nepal and abroad.
What are Education Loans?
Education loans are the types of loans that are specifically designed to help students to cover the expenses incurred while pursuing higher/university-level education. The expenses include tuition fees, library, laboratory and hostel charge, travel expenses for studies abroad, and so on.
Pros of Education Loans in Nepal
For those students who can't afford higher education, education loans can be a blessing. Here are some pros of education loans:
1. Paves for higher education
The biggest advantage of education loans is that such loans helps you to afford higher education. Education loans cover all the expenses college fees, lab fees, library fees, hostel fees, etc. incurred during the pursuit of higher education.
2. Repayment Flexibility
Another big advantage of education loans is that the borrower doesn't have to start repaying the loans immediately. In case of the other loans, the borrower has to start paying the installments right away but education loan can be repaid after the completion of your college education.
3. Provision of Moratorium Period
There is a special provision of the moratorium period in education loans. The moratorium is the time in which and after the loan amount has been disbursed to the borrower and the borrower is not required to make any repayment except interest. In other forms of loans, the payment should be done right away.
4. Less Processing Fees with Subsidized Interest Rate
Education loans are generally less expensive than other forms of loans. The interest rate, processing fees, and other charges are less for the educational loan than that of other loans with an additional spread rate.
5. Easy Repayment Module with EMI
The repayment should be done by the student after the completion of the study. As students will have to repay the loan in Equated Monthly installment (EMI), the financial burden is comparatively less.
Cons of Education Loans in Nepal:
Education loans might look attractive for many with little drawbacks at first glance but things are not easy as it seems. An education loan only pays off well as long as you borrow and spend it wisely. The cons of education loan in Nepal are:
1. Less Frequently Available to Low-income Students
Education loans are less available to low-income students. The disbursal of education loans is highly dependent upon the borrower’s (and cosigner’s) credit scores, debt-to-income ratios, annual income, employment history and so on potential future earnings such as the salary you’d receive upon graduation.
2. Effects on Mental Health
Regardless of the type of loans or the amount, loans can cause many psychological and emotional problems. Research has shown that people who struggle to pay off their loans are more likely to suffer from mental health-related problems. According to John Gathergood of the University of Nottingham, there are sizable causal links and social norm effects in the debut-psychological health relationship.
3. Long Lasting
Generally, education loans are long-lasting because of the long term period and EMI repayment module which means that you might end up paying off the loan for a very long time. The loan is not only about money and being in debt for a longer period can have many physiological, psychological, and emotional effects.
4. Collateral Requirement
Education loans are granted by banking and financial institutions against fixed assets collateral and fixed deposits. Collateral is a movable or non-movable property pledged as security for repayment of a loan, to be forfeited in the event of a default. The collateral/security can be land, building, securities & bonds, gold, and fixed deposits.
5. Requirement of a Credit-Worthy Cosigner
Finding a credit-worthy cosigner is a must for education loans. You might face difficulty in finding a trustworthy cosigner as cosigning is a responsible commitment and the cosigner is legally obliged to pay the education loan if the borrower fails to pay the loan.
A college degree is arguably one of the most invaluable investments and can be very fulfilling in the long run. As education loans should encourage people to invest in their own education, banks and other financial institutions must collaborate with government or other institutions to provide the loan to the students at a highly subsidized rate of interest to the students. The education loan market in Nepal is an area where banks and other financial institutions can think of investment as well as corporate social responsibility (CSR).
Disclaimer: This post is not intended to provide legal, financial, or tax advice.
